Posts Tagged ‘bookkeeping’

Q: Is it me or is QuickBooks getting harder to use? A: Its you.

February 27th, 2016

Is it me or is QuickBooks getting harder to useAs a long time QuickBooks professional, I have to ask, “​Is anyone really saying that QB is getting harder to use?”

Everything you have learned over the years is pretty much the same. Sometimes the interface gets modified, but that’s an easy adjustment. You might not even need the newer features, and can almost certainly get by without them if nothing related has changed in your business. And unless to use payroll or other features that require an online interface, you might not ever need to buy the new version. I have clients still using QB 2010.

If you change to QB Online you will find the interface to be very different, but then of course, it’s a different program. None of my clients that made the switch had difficulty adjusting to it, maybe because I toured them through the features they need to use themselves. If you subscribe to one of the low end, less expensive versions, you might burn a lot of time looking for features and reporting that don’t exist. Frankly, it is my option that these limited low-end QBO versions are just a ploy to get you vested in the product. Intuit knows that you will upgrade before long, especially if you need common small business features such as being able to produce 1099s for your contractors.

The difference between finding QB easy or hard to use is all about learning the proper use of the program. Just like everything else you do. If you don’t learn how to use it, it will be hard for you to use properly.

The next issue is that even though you don’t need to be an accountant, it helps a lot to understand accounting/bookkeeping basics. If you don’t, then you will have some degree of difficulty using it, and even worse might be creating a mess out of your books. The best boost in business I ever received was back when Intuit ran advertisements (for many years) with the slogan, “With QuickBooks, you are only a click away from being your own accountant”. Thousands of small business owners believed that, bought QB, and proceeded to make a real mess out of their books.

Even to this day, I rarely take over the bookkeeping of a new client without having to start out by fixing a large amount of problems related to the miss-use of the program, and then proceed to edit their Chart of Accounts to make their QB a better reflection of the actual business and the kind of information the owner needs to make the best possible business decisions. That is the case even when they had a bookkeeper doing the work for them. So many bookkeepers have learned QB, but still don’t know basic accounting or how a business functions. There is a lot more benefit in the proper use of any accounting software than just keeping track of things so you can file tax returns. An awful lot.


Understanding Debits and Credits

May 10th, 2014

Bean Counting-Debits & CreditsFor many business owners the debit/credit system is one of the great mysteries of accounting. And a good reason to let someone else handle it. Which accounts are debits? Which are credits? Why are debits on the left and credits on the right? Why not just say plus and minus? Why use such an system at all?

What are debits and credits?

A set of accounting books has two separate lists of numbers, one list called the “debits,” the other called the “credits.” It is a cardinal rule that total debits must equal total credits in every single transaction and in the set of accounting books as a whole.

You could define “debits” and “credits” as the two separate classes of numbers in your books.

Debit accounts and credit accounts

There are five basic elements of the financial statements:

  1. Assets (such as Cash, Inventory, Accounts Receivable, and Fixed Assets)
  2. Liabilities (such as Accounts Payable and Mortgage Payable)
  3. Owners’ Equity (for a Sole Proprietorship, Partnership, or Corporation)
  4. Revenues (such as Sales)
  5. Expenses (such as Cost of Goods Sold, Salary Expense, or Tax Expense)

Of these, Assets and Expenses are considered to be debit accounts, while Liabilities, Owners’ Equity, and Revenues are considered to be credit accounts. Every student of accounting should know these classifications cold.

How to remember which accounts are debits and which are credits

Having the debit accounts be Assets and Expenses, while the credit accounts are Liabilities, Owners’ Equity, and Revenues, doesn’t seem to make much sense. After all, most people think of Assets and Expenses as opposites. Likewise, Liabilities, Owners’ Equity, and Revenues don’t seem to have much in common.

What these accounts have in common is their relationship with cash. Credit accounts; Liabilities, Owners’ Equity, and Revenues are sources of cash. This is where the money comes from. You can borrow it, you can raise it from investors, or you can earn it from customers. Debit accounts – Assets and Expenses – are things you spend money on. Use your cash to buy Assets, or spend it on Expenses.

Journal entries

In accounting, transactions are represented as journal entries. Each journal entry consists of equal values of debits and credits. Debiting a debit account increases it. Crediting a debit account decreases it. On the other hand, crediting a credit account increases it. Crediting a debit account decreases it.

Suppose you sell a service for cash. You would debit the account Cash (an Asset), thus increasing it. You would credit the Account Revenues (a Revenue account), thus increasing. Hence, both your cash and your revenues will be increased.

Debits and Credits aren’t good or bad

Some people think credits are “good,” while debits are “bad.” Indeed, revenues could be considered to be good because they increase net income, while expenses could be bad because they decrease net income. However, on the balance sheet, one might say that liabilities (debts) are evil even though they are credit accounts, while assets are good even though they are debit accounts. This approach to understanding debits and credits doesn’t work.

Debits and credits form the building blocks of accounting. Assets and Expenses are debit accounts. Liabilities, Owners’ Equity, and Revenues are credit accounts. Journal entries have equal values of debits and credits affecting the accounts. In a company’s books as a whole, all debits must equal all credits.


10 Accounts Receivable Best Practices

April 22nd, 2014

accounts receivable cartoonProper cash flow management is always important for any organization. One of the most common causes of cash flow problems is poorly managed accounts receivable. Don’t assume that just because a customer purchased your product or services that they will pay you in a timely manner, or at all.

Slow paying customers may require you to draw down your cash reserves, or increase the amount of financing you need to cover your operations. As delinquent accounts get older, the probability of collecting those accounts diminishes. And of course, the more cash you have tied up in receivables, the less cash is available for running your business.

For charities and not-for-profits, slow collection of donation pledges and annual membership dues can put a strain on cash flow. While donations and membership dues are not technically accounts receivable, many of the same best practices can be applied to accelerate collections from your funding sources. Awareness of accounts receivable best practices becomes even more imperative not-for-profit organizations engaging in the sale of products and services to increase funding.

Follow these 10 best practices to improve the receivables process, which should improve cash flow and strengthen the bottom line:

1. Email Invoices
This will ensure your customers receive your invoices immediately, avoiding mail delays. Confirm with your customers which email address they wish you to send invoices to.

2. Shorten Payment Terms
In the days of paper invoices and checks, it was fairly common for businesses to extend credit to customers to allow for mail and payment delays, by granting credit terms, for example “Net 30”. However with the widespread adoption of email communication and electronic payment methods, businesses are now more commonly specifying “Payment due upon receipt”.

3. Have EFT and Other Payment Options
An increasing number of businesses are now paying their suppliers using Electronic Funds Transfer. By specifying on your invoice that payment may be made by EFT, you will enable your customer to deposit payment directly to your bank account. Simply include on your invoice your EFT banking information; bank, branch and account number. Also consider using PayPal and/or credit cards.

4. Establish Credit Policies
If you were going to extend a customer credit, it would be a good idea to assess their ability to pay. The expense of performing credit checks may be more than worthwhile for many businesses.

5. Review Accounts Receivables Regularly
Track the aging of your receivables, and systematically follow-up on any accounts that are past due more than a predetermined number of days. A good practice is to run an aged receivables report from your accounting system on a weekly basis, paying special attention to any receivables that are over, for example, 20 or 30 days old.

6. Use the Telephone
Follow-up unpaid invoices with a phone call if payment has not been received within a reasonable period. Written collection letters and even emails are usually less effective as they do not engage the customer in conversation. The fastest way to find out if there is a problem with a payment is to speak with your customer. Solving the problem in a manner that maintains a good customer relationship is also more likely if there is such a conversation.

7. Maintain a Collections Record
For each over-due account, keep a log of when follow-up calls or emails were sent, along with a record of customer’s responses to follow-up calls. Knowing that, for example, your customer promised to make a payment by a certain date will be invaluable if additional follow-up calls are required.

8. Offer Discounts for Early Payment
Payments are often made first to companies that offer discounts. The popular 2%/10, net 30 Days Terms means that if a customers pays within 10 days they receive a 2% discount, with the total due in 30 days. Try 2%/10, Net 20 Days. A customer may be less inclined to forgo a discount when the payment is due in only 10 more days anyway.

9. Use a Factoring Service
Using a factor is like selling your receivables to a third party at a discount. The costs involved with this method may be justified by greatly improving your cash flow, especially if you have a long collection cycle.

10. Use a Collection Agency
If you are unable to collect, you should submit the account to a collection agency. No one can guarantee to collect your outstanding receivables, but these companies tend to be very aggressive, and since they tend to charge based on the amounts they collect, this is a viable final option. Don’t expect to see any new business from these customers, but then they aren’t the kind of customers you want anyway.

Managing your accounts receivable is normally pretty straight forward as most customers pay on time. However, collection problems can be avoided, or at least minimized, with a strategy that considers the above best practices.

8 Reasons Small Businesses Can’t Make a Profit

November 11th, 2013

8 Reasons Small Businesses Can’t Make a ProfitI know from running an accounting and bookkeeping practice that many small business owners are making the same mistakes, and those mistakes prevent them from accomplishing the goal of being profitable. After all, a business isn’t there just to make money, it should be profitable.

This list of eight common mistakes that reduce or eliminate profitability is one all small business owners should check themselves against:

1.  Underestimating all the costs involved in producing, packaging and shipping a product
2.  Overestimating the size of the market for a product or service
3.  Undercharging for their services
4.  Not classifying expenses properly to take advantage of tax codes
5.  Purchasing too much, not enough or the wrong kind of insurance
6.  Overpaying on bank fees and credit card fees
7.  No collection process in place for customers that have not paid
8.  Not having accurate, up-to-date reports to provide the above information so corrections can be made

Many business owners try to keep their own records, (or have a spouse or friend help) and because they lack the knowledge and/or time to do it properly, they don’t have the information needed to evaluate and correct potential problems.

Sometimes there is enough money coming into the business to continue despite making many of these errors but correcting them could mean a much better payback for the owner. More often what happens is that the owner gets frustrated and overwhelmed. In such an environment of confusion time is not leveraged properly, decisions can be made in desperation, and more and greater mistakes are made, further distancing the company from its profit objective.

Once a proper bookkeeping system is set up and brought current, the owner can see the whole picture and assess where changes need to be made. Sometimes minor changes like switching to a different bank or credit card company, increasing prices, or outsourcing a specific task can have a big impact on profitability. Other times something more involved is necessary such as implementing a system of pricing levels, changing advertising tactics, or even changing the direction of the company to be able to offer a more competitive and profitable product line.

Having accurate bookkeeping, and its associated reports, provides the business owner with the necessary information to get a clear picture of the economics of the company. Evaluating business operations and making the day-to-day decisions becomes a process based on the facts of the business not the “feel”. Even if your company makes pants, you shouldn’t be running it by the “seat of your pants”.

5 Ways to Become Profitable

August 23rd, 2013

5 Ways to Become Profitable

All businesses want to make money. And of course if they don’t, then even those with great products or services will fail. Making more money and becoming a profitable business is what it’s all about. Here are five strategies that can help.

1. Change the Way you Operate
Analyze your existing business models and try to establish ongoing revenue streams. If your customers are buying infrequently then you might, for example, sell an ongoing re-supply program or a maintenance plan instead of just a one-time or stand-alone sale. Establish a relationship with new customers and change the relationships with established customers to tie the profitability of their business to your products or services.

Look around, analyze and learn from what your competitors are doing. Think about what you can innovatively apply from those lessons to your business.

2. Become Visible and Connected
If you have a long established company with a great reputation, loyal customers and respected industry experience, then you are probably running a successful business. But along comes the new guy who puts his business on the Internet and posts his credentials all over the place. Everyone, including your customers, can find him. You can’t sit there and assume that just because people know who you are you will remain dominant.

You have to have a marketing plan that addresses the current methods used by potential customers to find the products or services that you offer. When they search the Internet, and you’re not there, or they can’t find you, then in 100% of those cases you will not get their business. A lot of older small businesses don’t have a web-presence. If that’s you, or you don’t have a strategic marketing plan in effect, then you need to take your reputation online through social media, a website and a blog to connect with customers, including the ones you already have, or you won’t have them much longer.

3. Raise the Bar on Marketing
A lot of small businesses think about sales but not marketing. You can’t just go out and try to make sales; you have to have a plan with a strategy coherent to your industry, your company and the prospects you want to target.

In order to track the leads your marketing program generates, you will need customer relationship management (CRM) software, although a well-designed Excel application may be OK as you get started.

Consider using search engine ads, email marketing and other such online advertising.

Give your business an immediate web presence through social media networks including LinkedIn, Facebook, Twitter and YouTube.

Offer tutorials, demos, or new certification sessions as webcasts or podcasts for immediate download.

All these types of promotional vehicles need to be on the table because that’s what your competitors are doing.

4. Make Every Person a Salesperson
Some employees don’t think they’re there to promote sales or the business and are just there to collect a paycheck. But those days are gone and those people are the first to be laid off. Everyone should be an income-producing part of the business no matter what their main function might be. Everyone needs to pitch in to help cut costs, sell, and network on the web. Motivate employees to spread the message and reward those who make the extra effort or are producing new business.

5. Streamline Your Costs
If a business is having profit problems, the options are pretty straight forward. You can increase sales, decrease expenses, or do both. Due to the sluggishness of the current economic recovery, sales may not be where you would like them to be, and increasing sales may be a slow road. Decreasing expenses may be a faster way to turn things around. Try fitting expenses into three categories: fixed costs, such as rent and other overhead, sales-related costs that are tied to producing revenue, and discretionary expenses, such as new equipment and bonuses. Examine every single line item looking for ways to save, even with the fixed costs. Telephone and insurance costs may be fixed, but they are also competitive, and therefore negotiable.